If your debt is getting out of hand, and you’re having a hard time keeping up, then debt consolidation might be able to help you out. Although, if you don’t understand the process and what’s involved, you may make a mistake. It’s challenging to find the right lender, and there are more options than ever before. You need to have all the information and a complete understanding in order to make the right choice. To do that, there are certain questions you can ask yourself so that you can make your decision with confidence and move towards having an easier time paying your debt, and eventually being debt free.
What Is Debt Consolidation?
The first question you might ask is “what is debt consolidation?” You’ve probably heard the term bandied about, and maybe even heard it might help, but you don’t fully understand the concept. Debt consolidation is for people who have several sources of debt. They take out a loan to pay off all of their debt, and then everything is consolidated under one loan. There are different kinds of debt you can consolidate, from your credit cards, to medical bills, to other loans, and even taxes. The key is that the new loan is at a lower interest rate than your previous debts. Way more of your payments go towards the principal, so you can pay if off faster.
How to Take Out a Consolidation Loan?
You can get a consolidation loan from most mainstream lenders as well as online lenders like Purefy. They should have a link to the process right on their site. You can apply online by supplying them with your personal information and how much you are looking to borrow. Sometimes you can get prequalified, and that will give you a sense of how much you might qualify for. After this process, the lender will ask you to submit a loan application. Upon approval you can use the funds to pay off your debts.
Am I Eligible For Debt Consolidation?
There are many factors that go into whether you are qualified for loan consolidation. However, there is always the concern that your debt is not eligible for consolidating. Medical bills and credit card debt will always be eligible, but the lender may not consolidate certain types of debt. Make sure you ask them, so you can get a sense of how much of your debt is eligible.
What Should I Borrow?
You’ll need to determine how much to borrow before you apply. It’s as simple as calculating all of your debt that’s eligible, and getting a total. You can use an online debt calendar that will tell you how much you will save in interest if you do consolidate. It will also give you a sense of what the payments will be. You may also have debts that have a lower interest rate than your potential consolidation loan. The only reason you would want to include that is if it will lower your payments and you’re having trouble fitting payments in your budget.
What Are My Other Options?
There are other options out there, and you need to ask yourself whether they are worth it for you. For example, there are balance transfers and home equity loans. A home equity loan may be appropriate for you, since they tend to come with longer repayment timeframes and fixed interest rates. You may even be able to claim the interest that you pay on your taxes. However, there may be fees involved and you will lose some or all of the equity you have built up over time.
You can get a very low interest rate with a credit card balance transfer, especially if it’s a special offer. This can be very attractive, and you will save money, but after the promotional term you will be subject to a more standard interest rate. There may also be fees you have to pay for transferring, so make sure to take that into consideration.
What Are The Benefits Of Consolidation?
Finally, debt consolidation has several benefits that you can take advantage of. The main one is that you can combine all of your debts into one payment, and you’ll pay them all off at once. This comes with a lower overall interest rate, and potentially a lower monthly payment. If you have a lower payment, then you will have more cash available on a monthly basis.
What Are The Drawbacks?
There are a few drawbacks, and it will be up to you to decide whether they are worth it. For one, depending on your payment agreement, it might take longer to pay off your debt. You also might pay more interest if you have a longer repayment schedule and the lower rate isn’t low enough to make up for it.
Conclusion
This is an important decision, so take your time to consider all your options if you don’t want to make a mistake. Every person’s situation is different, and it’s important that you have all the information before you pull the trigger on your debt consolidation loan.
